CEOs of Albertsons and Kroger says shoppers would see lower prices after merger

Associated Press

PORTLAND, Ore. (AP) — The chief executive officers of Kroger and Albertsons insisted Wednesday — under questioning from the federal government — that merging would allow the two supermarket companies to lower prices and more effectively compete with retail giants like Walmart, Costco and Amazon.

Kroger CEO Rodney McMullen and Albertsons CEO Vivek Sankaran appeared in Oregon’s U.S. District Court to testify against the Federal Trade Commission’s attempt to block the proposed merger of their companies. During the hearing, the commission’s lawyers suggested that the merger would hurt competition in certain areas where the two are each other’s primary rivals.

“The day that we merge is the day that we will begin lowering prices,” McMullen said while under questioning by a lawyer representing his company.

The two companies proposed what would be the largest supermarket merger in U.S. history in October 2022, after Kroger agreed to purchase Albertsons. But the Federal Trade Commission sued to prevent the $24.6 billion deal, alleging it would eliminate competition and lead to higher food prices for already struggling customers.

Addressing another issue that has worried shoppers in communities with both Albertsons and Kroger-run stores, McMullen said Kroger was committed to not closing any branches immediately if the merger is finalized but might down the road if it decides location changes or consolidations are needed.

Sankaran, Albertsons’ CEO, argued that the deal would boost growth and in turn bolster stores and union jobs, because many of its and Kroger’s competitors, like Walmart, have few unionized workers. But when asked what his company would do if the merger didn’t go through, he said it may pursue “structural options” like laying off employees, closing stores and exiting certain markets, if unable to find other ways to lower costs.

“I would have to consider that,” he said. “It’s a dramatically different picture with the merger than without it.”

An FTC lawyer pointed to a written statement that Sankaran provided to the U.S. Senate in 2022 when testifying about the merger, in which he said his company was “in excellent financial condition.” Sankaran said the market and certain conditions had changed since then.

The testimonies of both CEOs were expected to be critical components of the three-week hearing, which is at its midpoint. What the two say under oath about prices, potential store closures and the impact on workers will likely be scrutinized in the years ahead if the merger goes through.

Kroger, based in Cincinnati, Ohio, operates 2,800 stores in 35 states, including brands like Ralphs, Smith’s and Harris Teeter. Albertsons, based in Boise, Idaho, operates 2,273 stores in 34 states, including brands like Safeway, Jewel Osco and Shaw’s. Together, the companies employ around 710,000 people.

FTC attorneys have argued that in the 22 states where the two companies compete now, they closely match each other on price, quality, private label products and services like store pickup. Shoppers benefit from that competition and would lose out if the merger is allowed to proceed, they said.

According to Kroger and Albertsons company documents referred to by FTC lawyers on Wednesday, the two companies are primary rivals in multiple regions, from southern California to the Portland metropolitan area. A Kroger attorney countered by saying that Walmart remains Kroger’s largest competitor in a majority of markets around the country.

McMullen said that Albertsons’ prices are 10% to 12% higher than Kroger’s and that the merged company would try to reduce the disparity as part of a strategy for keeping customers. Walmart now controls around 22% of U.S. grocery sales. Combined, Kroger and Albertsons would control around 13%.

“We know that pricing is going to continue to go down,” McMullen said.

The two CEOs also spoke to the ways in which e-commerce has transformed the grocery industry, noting Amazon’s online shopping platforms and its purchase of Whole Foods.

“When Amazon enters something, they make a big change,” Sankaran said.

The FTC and labor union leaders also claim that workers’ wages and benefits would decline if Kroger and Albertsons no longer compete with each other. They have additionally expressed concern that potential store closures could create so-called food and pharmacy “deserts” for consumers.

“America needs more competition, more grocery stores, and more leverage for workers to secure better pay and staffing – not less,” the United Food and Commercial Workers International union’s Stop the Merger coalition said in a statement Wednesday.

McMullen said Wednesday that Kroger was committed to honoring existing labor contracts. The FTC’s chief trial counsel, Susan Musser, said the merger still might affect working conditions because union contracts are typically renegotiated every three years.

Under the proposed deal, Kroger and Albertsons would sell 579 stores in places where their locations overlap to C&S Wholesale Grocers, a New Hampshire-based supplier to independent supermarkets that also owns the Grand Union and Piggly Wiggly store brands.

The FTC alleges that C&S is ill-prepared to take on those stores. Laura Hall, the FTC’s senior trial counsel, has cited internal documents that indicated C&S executives were skeptical about the quality of the stores they would get and may want the option to sell or close them.

C&S CEO Eric Winn, for his part, testified last week that he thinks his company can be successful in the venture.

The FTC is seeking an injunction to block the merger temporarily while its lawsuit against the deal goes before an administrative law judge. U.S. District Judge Adrienne Nelson was expected to hear from around 40 witnesses before deciding whether to grant the request.

If Nelson agrees to issue the injunction, the FTC plans to hold the in-house hearings starting Oct. 1. Kroger sued the FTC last month, however, alleging the agency’s internal proceedings are unconstitutional and saying it wants the merger’s merits decided in federal court.

The attorneys general of Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming all joined the FTC’s lawsuit on the commission’s side. Washington and Colorado filed separate cases in state courts seeking to block the merger.

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Durbin reported from Detroit.